Over the past few decades, robust online commercial marketplaces have developed, selling a wide variety of goods and services. A key enabler of these markets has been public key encryption systems such as, but not limited to, the RSA public key encryption that allows secure transactions, including secure monetary exchanges to occur even over insecure, public communications network. This has allowed customers and vendors to use established forms of payment for goods or services that are bought or sold on line. Credit cards, in particular have become a widely used means of monetary transaction on the Internet. Even seemingly standalone payment service providers such as, but not limited to, PayPal™, typically rely on charging user credit cards.
On-line markets can aggregate enormous numbers of potential customers from a very wide geographical catchment area, so it is no surprise that Internet commerce continues to grow rapidly. There are, however, elements of the current transaction paradigm that limit the type of products that can be traded economically over the Internet.
One particular limit is the per-transaction price point at which it is economical for a vendor to make an online sale, even of a digitally reproduced product, such as music, that has virtually no reproduction or delivery costs. This arises, in large part, because of the way that credit card companies usually operate. They typically make their profits in two ways.
First, they may charge the vendor a percentage of the transaction amount, usually in the range of 3-5% of the value of the transaction.
Second, they may also charge the vendor a “per-transaction fee” for processing the payment. This per-transaction fee is typically about 25 cents. While a negligible percentage of a $100 purchase, on an item costing $10 or less this per-transaction fee may equal or exceed the percentage-based portion of the credit card company's cut.
Digitally reproducible goods, such as digital audio, video, text and all forms of online publishing, are particularly good candidates for selling via the Internet because additional digital copies cost virtually nothing, and the low distribution overheads are typically absorbed by the consumer.
In principle, a producer of songs, films or books, should be able to use online market places as an effective means of recouping the often significant cost of producing the original work by selling enormous amounts of digitally reproduced copies at a low price.
There are two problems to this simplistic view: the credit card companies' per-transaction fees and piracy.
The per-transaction fee puts a lower limit on the price that can be charged by a viable business. Apple™ i-Tunes™, for instance, is able to charge 99 cents per song, and has found this to be a price point at which they can make money, but they account for only about 5% of music downloaded, so it appears that the great majority of music listeners consider that even this price is excessive. According the International Federation of the Phonographic Industry, the majority of online music is still downloaded for nothing, either from friends, or from pirate websites. In the absence of what customers consider to be fairly priced music, piracy has decimated the industry. Over the last decade the world wide music industry has seen an inflation adjusted decline in total revenues of over 33%—and the trend continues downward.
Wide spread availability of high-speed Internet services with its larger bandwidth and new and innovative ways of distributing large quantities of digital content such as, but not limited to, bit-torrent distribution, are beginning to make pirating a problem even for film producers.
One approach to solving this problem is to attempt to eliminate pirating through better encryption software, improved hardware protection, harsher laws and tighter law enforcement. None of these, however, seem to have made much of a dent on music piracy.
Another approach, facilitated by this invention, is to improve digital payment systems so that vendors can profitably charge very low prices per item and customers can safely and easily make micro-payments. If micro-charges of a few cents per item are made viable, producers can, using well-organized websites, sell their products at prices that make even pirating for free too much effort. In this way, they can spread the cost of creating the original over a sufficiently greater number of customers that they still make a profit. Pirates will become obsolete because even pirated video distribution requires paying for web-hosting, and therefore pirate websites such as PirateBay™ typically rely on advertising. The legitimate sellers that provide low priced, conveniently available content may attract more paying customers rather than those who currently choose pirating over high prices. Without enough user traffic, pirates won't obtain enough advertising revenue to pay their bills. Piracy may not disappear, but at least become a minor distraction to legitimate companies that may have two streams of income—advertising and micro-payments. Or it could enable online publishers to rely solely on micro-payments and not have their content limited by their advertisers.
The system and method of this invention may allow a vendor to bundle purchases across both an individual buyer's purchases, and across multiple different buyers' purchases. This may mean all the purchases may be settled with a single credit card transaction, with only one per-transaction fee—effectively spreading that per-transaction fee across a significant number of purchases. This may allow a vendor to profitably make micro-charges of the order of 1 cent or less per item, enabling selling at both very low prices and a very fine granularity of content, such as, but not limited to, sales on a per-sentence, or per word, basis for articles, jokes or horoscopes, a per-image basis for cartoons, even a per-pixel basis for images, or some combination thereof.